In many cases business plans are very important but so much of the time it’s a plan to try to convince someone else that you know what you are doing with your business like banks, investors, partners, etc. Now it’s true that a well written business plan can also be a major benefit to your success as well if done right. It can guide you and keep you on track and can be the vehicle to get you were you want to be especially with so many outside forces now days that bombard you. A plan can be extremely important to your success especially when you look at the statistics that says 51% of small businesses fail sometime during their first 5 years.

So why make a business plan? I want to show you a totally different kind of business plan. What if you made a business plan that focused only on what you want for your life? You have dreams about what you would like your lifestyle to be, right? Why not make a business plan that could give you those dreams? What would your business look like if it gave you exactly what you want in life. What kind of salary would your business need to give you? Why not build a business plan around that? Decide how much salary you would need to support your dreams and then build a business plan that would show exactly how your business could give you that. Wouldn’t it be better to have your business work for you instead of the other way around?

Did you ever stop and think what a unique position you’re in as a business owner? I don’t know of any other way you can have as much control over your success than owning a business. When you work for someone else, you are totally at their mercy as to what your future may be like. It doesn’t matter whether it is a private business you work for or a large corporation. Your future is in their hands. The only thing that might qualify other than owning a business would be to inherit or win a lot of money that would give you everything you want in life.

So, why make a business plan the normal way when you could first make one that could give you what you want in life? Have you ever thought about doing a plan like that? Would you know how? Would you have the time to do it?

Well if you don’t or not sure, let’s at least see what’s involved.

Here are the steps you would need to take.

First, you would need to know all your current business numbers. This will be the basis for the plan. You’re going to need to know:

1. What your current average monthly sales are
2. What your current average monthly material cost is
3. What your current average monthly labor cost is
4. What your current average monthly fixed expenses are
5. What your current average monthly variable expenses are
6. What your average number of transactions per customer per month are
7. What your average dollar sale per transaction is
8. What your average monthly profit is
9. What your average monthly profit margin is
10. And what % capacity your business is at right now

Second, decide what you want your salary to be

Third, determine how many years in the future you want to plan for

Fourth, you will need to know:

1. What % is your material cost of sales?
2. What % is your labor cost of sales?
3. And what % is your variable expense of sales?

Why do you need to know these percentages? As your sales increases or decreases, your material cost, labor cost, and variable expenses will track accordingly. They will track very close to the same % as your current business. As an example, let’s say your current sales is averaging $100,000 per month and your material cost is averaging $20,000 per month. That’s 20% of your sales ($20,000 ÷ $100,000 = 20%). So, what would your material cost be if your sales were averaging $200,000 per month? It would still be 20% but it would be 20% of $200,000 or $40,000. So with these percentages, you can project your material, labor and variable expenses. See how it works?

But your fixed expenses don’t do this. They remain the same no matter what sales does. That’s why it’s call fixed. These are expenses like rent, taxes, utilities, phone, salaries, insurance, etc. A lot of business owners never consider this. They just lump all their expenses together. But you could never make an accurate plan if you combine all your expenses together. If you project your sales higher and want to know what your expenses will be, you have to separate your fixed and variable.

So, thinking about this principle, let me ask you a question. If your sales grew 10% and nothing else changed, would your profit margin be higher, the same, or less? Profit margin is % of profit against sales

If you said the profit margin would be higher, then you are right. Why would your profit be higher? If you said because of the fixed expenses, you would be right. Your material cost, labor cost, and variable expenses would have gone up 10% but your fixed expenses would have remained the same. You brought in more revenue because of more sales and you spent 10 % more on material, labor, and variable expense to cover the extra sales, but you didn’t spend any more on your fixed expenses. So, less overall expenses, would give you higher profit margin. Make sense?

So, let’s see how we would make a business plan that would show exactly how your business could give you the salary you want.

First you would determine what you would like your salary to be. You’ve dreamed about having a nice income to support your dreams I’m sure. Let’s say right now you only make what your profit is giving you which might not be much. So let’s say the first year, next year, you would love to have a consistent monthly salary of $4,000 a month, every month. And every year you would like to be able to increase it so that after 10 years it would be at $10,000 per month. And let’s say you would like to grow your business 10% each year.

So, what would your business look like over the next 10 years to give you that?

Could you build a plan that would show exactly how your business could do that?

It would show what your sales, fixed expenses, material cost, labor cost, and variable expenses would need to be. It should also show you how many customers you would need and would show you what your profit and profit margins would be each year.

All it takes is your current business numbers as we listed earlier and you can make a business plan as many years out as you like.

Now, in addition, when you know the average number of transactions per customer and you know your average dollar sale per transaction, you can also project how many customers you would need over those 10 years as well. This would tell you everything about what your business would need to do to give you the salary you want.

So, wouldn’t it be nice to see what a plan like this would look like? Could you do it? It might not be as tough as you might think.

There is no doubt it would take some time and would require a lot of calculations, but when you understand these principles and know how to put it together, you could probably do it. What do you think? Have you ever thought about doing a plan like this? It’s actually kind of in reverse. You decide what you want and let your business give you that.

Now assuming you did do this and it looked reasonable to you, how would you go about making it happen? What approach would you use? This could be a little harder. Well let me show you something. It might be easier than you think.

Did you know there are 7 ways to increase profit in business? If we decided to grow our business, most likely the first thing we would think about would be to add more customers. Adding customers will increase sales and as we seen above can increase profit as well, but it might not be the most effective way to increase profit. Take a look at these and see which ones you think could work for you. Would it be to:

What’s more important, sales or profit? Profit is what generates your salary. You could actually make more profit with less sales. Less sales could actually be less work. The most important thing for a business is to make money. That’s profit. Now some might say, I don’t care so much about making a lot of money. I like the freedom of owning a business. Well that is probably true, but if you don’t watch your profit, you might lose that freedom.

It’s always amazed me how most businesses, even very large ones, talk about how much their sales are. You hear comments like, that’s a $10,000,000 company. But what’s a $10,000,000 company if it has no profit. Now I do admit that 2% net profit of $10,000,000 is a lot bigger than 2% of $1,000,000 but most likely the large one carries a lot more headaches too.

Maybe it would be much better to have focused on profit than sales. What if profit had been the focus instead of sales. What if this could have been the result?

$10,000,000 x 2% = $200,000 profit
$1,000,000 x 25% = $250,000 profit

So when using one or more of these 7 ways to increase profit, the first one (adding more customers) might be the one you want to focus on last. It’s probably more expensive

Now, if you had your plan completed and it showed what your business needed to do over the next 10 years to give you the salary and profit you wanted, the next thought would be how do I make it happen. Well the best way would be to take it one year at a time. Concentrate on next year first and then choose one or more of 2 through 7 to work on before trying to add customers.

As an example, let’s say your current average number of transactions per month per customer is 3.0. Which says on average each customer does business with you 3 times each month. You could calculate how much more profit you would get if you could increase it to 3.5. And I can tell you that would probably be enough to meet your plan. And if that did generate enough profit, all you would have to do is maintain everything else; sales, expenses, labor, average dollar sale, etc, and then just figure out how you could increase your transactions from 3.0 to 3.5. Maybe it could be with some type of promotion that would get customers to come in more often.

Once you chose which one or more of the 7 you want to use and calculate exactly how much impact they have on meeting your plan, you would now have a definite approach on how to make your plan work.

It seems simple. At that’s what it’s all about. It’s about how to make your plan work the easiest and smartest way you can eliminating all the guesswork or trial and error methods. Want to increase your profit? This is a good way to do it.

So, you see, once you decide which of the 7 ways you’re going to do, then the only thing left for you to do is figure out how to make the one or ones you have chosen work.

No doubt there would be a lot work to do to do a plan like this. You would need to figure out how to put it all together, do all the calculations, do a lot of what if’s, etc.. And I’m sure one of the biggest things would be, would you actually take the time to do something like this or even have the time to do it? You could pay someone to do it but that would probably cost you a lot. Plus if you did that, most likely it would require a lot of back and forth work to get it just like you wanted it which would be even more expensive. But even then, would you spend the money to do it?

There is a better way. If you would like to develop a nice plan like this for yourself and give yourself a good shot at making your life better, then find a planning software that does it all for you.

Everyone has prepared a business plan. Well, should that read, everyone should have prepared a business plan? My thinking is that these tend only to be prepared when they are needed, rather than as a useful business tool for all senior management. My top five ingredients are:

1. Understand what a business plan is;

2. Understand what you intend to use it for;

3. Identify and implement the critical steps to achieving a successful business plan;

4. Understand what needs to be included in the plan;

5. Be aware of gaps or weaknesses in your plan.

What is a business plan?

A business plan sets out the method for running a specific activity over a specific future period.

Why are business plans needed?

Business plans are needed essentially for the four following reasons:

1. A formal, explicit document of the planning process;

2. A request for finances;

3. A framework for approval;

4. A tool for operational business management.

What are the critical steps needed to achieve a successful business plan?

This may come as a surprise to my fellow business consultants, but producing a successful business plan is not as difficult as people often think, so long as they follow a logical sequence. Here is my considered view as to the critical steps.

Without being too prescriptive, there are certain necessary elements which need to be included. Such elements are:

· Preliminaries – such as contents, contacts and definitions;

· An executive summary;

· A description of the business;

· A review of the market, the competition and market positioning;

· The vision, mission and objectives;

· The corporate strategy;

· The plan for developing the products and services;

· Financial projections;

· An outline of the risks and opportunities;

· A conclusion.

Understand gaps and weaknesses within the plan.

Any casual viewer of the BBC programme, Dragons Den will be aware of how easy it is for weaknesses or gaps to be identified. Depending upon the purpose of the plan, this may, or may not, prove to be critical. It is often easier to recognise such weaknesses and gaps, and be prepared to deal with them, either by noting them in the plan itself, or having appropriate answers available should the need arise.

Who should prepare the plan?

As a business consultant, this may sound like heresy, but I believe that any plan should be produced by the senior management of the organisation. That is not to say that the consultant does not have a role to play in its preparation. He does. Senior management should prepare the plan as they will then be able to present and discuss it, demonstrating to their audience that they fully understand their business and market. I believe that the consultant’s role is to help facilitate the preparation of the plan, the consultant can help undertake the necessary research, and can cast a critical and impartial eye over the plan.

The first point to keep in mind about business plans is… have a business plan! This may seem obvious but is overlooked. Many people start businesses without a plan; sometimes it can come from sheer bravado, thinking “I don’t need a plan”, or alternatively you might hear “It’s all inside my head, that’s my business plan”. The reality is no matter how much you work with things in your head, no matter how confident you may be and how much you think you already have a great vision for your business, there are so many great reasons why you should get it down on paper.

Most of all if you are seeking funding for your business, it will be absolutely crucial to go along and show someone an actual plan, because there will be very few people who will loan you money on the basis of what’s just in your head. So it’s pivotal to have a plan and be committed to preparing that document. If you are someone who shies away from planning, or you don’t like writing or preparing documents, nevertheless you are going to have to force yourself on this occasion. I say that because it is such a key document for the future success of your business, such a tool throughout its development to return and refer to.

Have An Overall Vision

When writing your business plan it is really important to have an overriding vision of what your business is going to do, what it is going to be, and what you want to achieve. Very often it is tempting to get straight into the technical details, the monetary concerns, financial matters, where you will be sourcing supplies, etc. Now all these things will be vital in your business plan, but it has to be held together by a coherent, broader vision.

Remember the proverbial expression ‘not seeing the wood for the trees’? You need to see the ‘wood’ first, then delve in and start examining the individual ‘trees’, meaning the individual items which you will be breaking down later. So a great point is to make sure that you have that overarching vision – and if you cannot find one, then maybe it is an indication that you are obsessing on a few technical aspects that do not necessarily make up a whole business as you had imagined it. A business that makes sense and is going to be sustainable in the future is one that has that clear vision within which all the smaller parts contribute to make it successful.

Contextualise Your Budget

Of course your budget will be extremely important. But sometimes people sort of pluck figures out of thin air, not giving it the context it needs in the business plan to make real concrete sense of how that budget is going to work.

So it is crucial that every time you mention financials in your business plan, to really give them the correct context. When I have worked with clients in developing business plans, there has been a budget or amount set aside for example to be spent on marketing, which has been decided a bit arbitrarily. I mean with no real research, no understanding of what that amount needs to be spent on, and what that budget will truly achieve. It seems to have been put there to fill the need to attribute a certain sum to marketing.

Make sure you are researching each point of your budget, make sure that you are giving it context and it makes proper sense within your overall plan.

Don’t Make Assumptions About Customers

To be an entrepreneur does require plenty of self-confidence, sometimes almost a bloody-minded determination to make your business work. But this confidence spilling over into thinking that you know what ‘the market’ wants can be dangerous, without checking that it’s true. You need to do your research that the market does ultimately want what you will be offering, whatever products or services you will be selling.

That is a great thing to make sure you have in your business plan, that your business will be built around those real customer wants. Do not make callous assumptions, or statements like “I know what people want”, “People are going to love this”, and so on. Have you done your research? Do you really know that the people you will be targeting want your product / service, and crucially do they want it AT THE PRICE that you will be offering it at? Whilst confidence in your plan is fantastic, you must make sure that it does not lead you down a blind alley along a path that is not desired by your target market.

Don’t assume what customers want, do your research and make sure that is clear from the start in your business plan.

Research Your Competitors (But Don’t Copy!)

Every business plan should focus a lot on the business’s potential competitors, because research and analysis of the competition effectively gives you plenty of useful information. It may guide you as to where you should be advertising and marketing, or certain strategies to use or ones to avoid because you see they have been used unsuccessfully by others.

I often see people split into two camps. On one hand those who almost ignore competitors in their business plan, because they do not want to think about the issue yet and feel so confident they have a great idea for the market regardless. But I recommend not being overconfident when it comes to competitors. They are still there for a reason, they are still around and in business for a reason, so view them with that in mind.

I teach that you should seek to learn from competitors; obviously never copy another business’s idea or what they are doing, but you can absolutely learn from their mistakes or see what they are doing and discover ways to improve it. All of that analysis belongs in your business plan: make sure you have your competitors under the microscope and make sure that is a solid chunk of your plan. That is some of the best research and information you will gather about what will make your business successful in future.

Be Prepared For Risks

It is a fact of life that any new business or enterprise has a degree of risk attached to it. Therefore it is important for your business plan to analyse and calculate that risk, showing how you will engage with it. There is no business plan out there that is risk-free, but very often where the risk is higher then the rewards will be as well.

What should come into your business plan is how you assess it, how you foresee anything occurring that could have an adverse impact and how you would deal with it in the right ways. If you are looking to obtain funding from a bank or people you know, it is essential to show what the risk factors are in the proposed business and how you plan to defend against them.

It could be, for example, the risk of a change in the economic environment – what are your contingency plans for that in terms of dealing with such a situation? There may be many other risks as well specific to your particular sphere of operation, but that ability to plan ahead for all scenarios makes for a robust business plan. When I have received business plans, the very best responses come from people who have looked at the risks and have an answer for every question. What you never want is to throw a scenario at your plan and have to answer “I don’t know what I would do in that situation”. You want to plan for every possible contingency, and certainly all the major risks to the ongoing success of your business.

Obtain Feedback On Your Plan

When writing a business plan you sometimes end up locking yourself away. You might have unique ideas which lead you to seek some isolation and secrecy, or if you are going to be a sole trader you may only have one person to consult namely yourself. But it is fantastic to try and get broader input on your business plan – whether from a professional, or simply from friends and family whom you trust. I say that because of course you need to be careful with commercially sensitive ideas, as you do not want to pass your plan on to someone in the pub who then starts your idea before you across the road.

But do not be too paranoid, make sure you are showing it to people you trust, whose feedback you welcome and can be genuinely useful in guiding how the plan takes shape. Very often when working as individuals we get very close to certain details and miss out a big thing that has slipped your mind. You can concentrate so much on essential financials and supply logistics, but overlook other issues like marketing or opening times. By showing the plan to someone you trust, they can have a look and see what might be missing or worth developing more. Getting that valuable second opinion on how robust your idea is will put you in a much better position to start and keep going successfully.